Vietnamese craftsmen find it impossible to compete with foreign imports
Local wood products are displayed at an exhibition in Ho Chi Minh City. Only 20 percent of woodwork products sold in Vietnam are produced by domestic firms, according to an industry association.
Due to a weak distribution system and unfavorable tax policies, local woodworking firms find it hard to tap the domestic market. In the meantime, cheap imports dominate Vietnam's market.
According to the Ho Chi Minh City Handicraft and Wood Industry Association (HAWA), only 20 percent of woodwork products sold in Vietnam are produced by domestic firms. The rest come from Taiwan, Hong Kong, Malaysia, Indonesia and Thailand. Chinese woodwork items are the biggest sellers in Vietnam.
Nguyen Ton Quyen, vice chairman and general secretary of the Vietnam Association of Woodwork and Forestry Products, said that, over the years, foreign markets have been their bread-and-butter. After the economic downturn cut into foreign buyers, local woodworkers discovered just how hard it was to sell at home.
Cheap well-designed imports are a huge hit here, he said.
"The consumption power of the local market is rather high. In the four cities of Hanoi, Ho Chi Minh, Da Nang and Hai Phong, luxurious hotels spend VND38-40 million (US$2,000-2,105) on woodwork products for one room every year; a wealthy Vietnamese family may spend VND12 million," he said. "Demand in urban areas alone accounts for approximately $1 billion in sales, each year."
Import tax reduction has inspired a flood of foreign interior products (e.g. tables, chairs, wardrobes to beds) and put great pressure on the local woodwork industry, Quyen said. Early last year, Vietnam lowered taxes on woodwork imports to 0-3 percent, depending on the product. Previously, these tariffs exceeded 10 percent.
Meanwhile, local firms still pay 10 percent value-added taxes, he said.
"Foreign producers enjoy a stable supply of cheap materials and tax reductions," said Tran Duc Thuan, director of the woodwork firm Hung Long. "They have the competitive advantage in Vietnam."
The government has also dropped a more than 10 percent export tariff on wood materials harvested in artificial forests making Vietnamese raw materials more attractive to foreign buyers. The increased demand has driven up material costs for domestic producers.
Vo Ta Tuan, head of the sales department at the woodwork producer Constrexim, said his firm has had to start importing materials which has, in turn, driven up his selling prices.
In the end, woodworking firms have learned the hard way that it's cheaper to sell abroad than break into the competitive domestic market.
Woodwork exports contribute $3 billion each year to Vietnam's GDP. In the first eight months of 2010 the country shipped out $2.1 billion worth of the products - a year-on-year increase of 36.1 percent, according to the General Statistics Office.
Tuan from Constrexim said the distribution system of woodwork firms is still weak. "We lack investment capital, and qualified manpower to build a strong distribution channel like other countries." Up to 60 percent of his company's products are exported, he says.
Quyen argued that the government should support the construction of a distribution system for woodwork products, which would help producers attract big orders at competitive prices. His domestic trade association has conducted a survey of the tastes and demands of consumers in different regions in Vietnam. The survey is scheduled to finish by mid 2011, Quyen said.
"At the moment, no studies have been produced concerning the demand and taste of local consumers despite a large market with more than 80 million potential consumers," he said.
In the end, Quyen believes the government should cancel the value-added taxes imposed on woodworking firms and extend them preferential credit. Most of the interior woodwork producers are small to medium-sized enterprises which are still poor in terms of capital and technology. More than 3,000 of the total 4,000 wood producers, nationwide, are small- and medium-sized firms.